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We Are All Deficit Cutters Now

12:00 AM, Apr 16, 2011 • By IRWIN M. STELZER
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President Obama got it right when he said the budget is about “more than just cutting and spending. It’s about the kind of future we want. It’s about the kind of country we believe in.” And, at long last, after years of the president’s ostrich-like approach to the huge federal deficits, and after months of partisan quibbling about less than 1 percent of the spending called for in the budget for this fiscal year, Americans will be given a choice. Never mind about the details: neither those contained in the president’s plan nor those in the alternative presented by Wisconsin Republican Paul Ryan, chairman of the House Budget Committee, will necessarily survive the bargaining process that is about to begin.

We Are All Deficit Cutters Now

Round one has gone to the Tea Party, much derided in the liberal press, and ridiculed by the foreign press as gun- and bible-toting ignoramuses infatuated with Sarah Palin and unlikely to hold a passport. Well, they have changed the national debate from how much more to spend to how much spending to cut, from deficits don’t matter to deficits are dangerous to the nation’s economic health. Doubt that and ask yourself whether the president who only a few months ago pushed for still another round of “stimulus” spending would ever have said, “Our debt has grown so large that we could do real damage to the economy if we don’t begin a process now to get our fiscal house in order.” His Treasury secretary, Tim Geithner, did not intend to, but in fact did, pay homage to the Tea Party for changing the entire national debate when he told a business conference that the U.S. has made a “fundamental shift … That's very important. It makes it very hard for future presidents, future Congresses to decide that you can live with the risk of higher deficits in the future.”

Let me paint with the broadest brushes. Barack Obama wants to restore the nation’s finances primarily by unspecified cuts in military spending, taxing those he considers to be rich, and practically rationing health care. This would enshrine in the budget three major themes of the Democratic left.

♦ Extend the Libyan model to all U.S. interventions. No use of force unless approved by the United Nations (presumably the blessing of the Arab League will not be needed in all future cases), and then only in conjunction with allies who will be expected to bear the major burden of any engagement. This avoids not only the cost of those interventions, but such expenses as are associated with maintaining U.S. forces in Germany at existing levels.

♦ Reduce the inequality of after-tax incomes by making the tax code more progressive—soaking the rich, in the vernacular. What the president considers to be “loopholes” will be plugged, and the tax rate on families earning more than $250,000 per year will go up, crudely stated by the president as eliminating “tax cuts for every millionaire and billionaire in society.”

♦ Maintain what the president calls “investment” and others call spending on education and infrastructure to better equip the country to compete in an increasingly globalized world, continuing the expansion of the role of the state that has been the hallmark of his presidency.

Over to Paul Ryan, the hero of the deficit cutters in the Tea Party and, I would guess, old-line Republican conservatives who favor a balanced budget at all times, and who believe that the only people more evil than John Maynard Keynes are his present-day followers. Ryan would cut the deficit by cutting spending, would not raise taxes, does not wish to take an axe to military spending, and wants to bring the budget into balance by relying heavily on a plan to convert Medicare into a subsidized insurance scheme that gives individuals control over their own medical budgets. Ryan and his followers believe that American citizens can spend their money better than the government can, and that taxing the rich is counter-productive because of its negative effect on incentives to work, and take the risks involved in setting up a small business. Inequality, they at times quietly say is an incentive to those at the bottom of the ladder to work their way up, and benefits that decouple work from income have a long-term negative effect on the ratio of wealth producers to government dependencies.

There is more, a lot more. Obama would rely on triggers that cut spending if certain deficit reduction targets are not met by 2014, and Ryan on reducing the inflation in health care costs to the lower level of general inflation. The president knows that although he will not have to face the voters in 2014, the Congress he is counting on to swing into action and cut spending will. And Ryan must know that an ageing population will demand increases in health care services that are likely to drive up costs under almost any system of provision.

It is unlikely that a grand bargain, rather than a messy stopgap compromise can be struck during the upcoming debate on raising the $14.3 trillion debt limit, a ceiling that will be hit sometime between May 16 and July 8. That will have to wait for vox populi to be heard in the 2012 election. The president knows he cannot face the voters as a deficit denier or deal wrecker, and the Republicans know that placing all of the burden on those most reliant on government services, while protecting higher earners from any increase in taxes, is likely to push the undecided in the president’s direction.

The initial reaction of both sides should have been predictable. John Boehner, leader of the Republican majority in the House, rejects Obama’s plan, saying proposed tax increases are “a non-starter” because it is spending, not a revenue shortfall that is fueling the deficits. Harry Reid, leader of the Democratic majority in the Senate, dismisses the Ryan plan as “shallow … posturing on the deficit [that] is just an attempt to distract from their bankrupt ideas.” More important, the president, in full campaign mode, did not contribute to an atmosphere of civil bipartisan discussion by personally attacking Paul Ryan, whom he had invited to take a front-row seat while he presented his own plan, for offering “nothing serious or courageous” and, in the words of the Wall Street Journal, “pitting ‘children with autism or Down’s syndrome’ against ‘every millionaire and billionaire in our society.’” Ryan responded that “rather than building bridges [the president] is poisoning wells.” Designated conciliator Vice President Joe Biden has his work cut out for him, as do the bipartisan deficit reduction commission and the “gang of six” legislators, both groups groping for an acceptable compromise.

None of this should be allowed to obscure the good news. The nation is to be treated to a real debate over just what it wants to be in this 21st century. And it is being asked to discuss the right questions: what should be the balance between the role of government and the place of the individual? How much should current generations party at the expense of their children and grandchildren? What is a fair balance between reductions in entitlements and increased taxes on the better-off? How dependent does America want to be on continued financing by the Chinese regime and other foreign countries?

The world awaits the answers. The International Monetary Fund, pointing out that the U.S. is the only advanced economy to increase its underlying budget deficit in 2011, and with the exception of Japan the only country with its debt scheduled to rise in 2016, says that our failure to rein in the deficit “would have very important consequences for the rest of the world.” The world has a bit less to worry about on this score than before the issue was joined last week. All thanks to Congressman Ryan for forcing the president and his own party to move the deficit onto center stage and perhaps proving that Winston Churchill was right in saying, “Americans can always be counted on to do the right thing—after they have exhausted all other possibilities.”

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